What the Media Missed

Here’s what the headline in every paper in the country should read today:


That’s the record budget deficit the government has accrued on our behalf since the fiscal year began last October. The word “record” really doesn’t even do the number justice… $1.1 trillion is more than double all of 2008’s all-time high deficit of $454 billion — and as you know, 2009 ain’t over. The CBO currently projects a $1.8 trillion budget deficit for the fiscal year, more than triple last year’s record.

Look at the recent history of the Treasury’s numbers and the trend is obvious. Check out our government’s book-balancing stupor over the last couple years:


That’s the kind of chart that should make a lot of sense to an active investor. What’s the outlook for a volatile stock that’s been making lower highs and lower lows?

But our government’s outrageous deficit isn’t the story du jour… once again, that title goes to Goldman Sachs. The world-famous investment bank reported earnings this morning in line with our sentiment yesterday: Goldman profited $3.4 billion in the second quarter, roughly double the Thomson Reuters forecast of $1.7 billion.

Perhaps even more beneficial for Goldman’s share price — and the market at large — newly famous analyst Meredith Whitney gave GS her first ever financial “buy” rating yesterday. The “buy first, think later” types took this news straight to the market, bumping up GS shares 5% and the S&P over 2%.

But as usual, the drama’s in the details:

“Our more bullish outlook on Goldman Sachs shares,” Whitney wrote, “is deeply rooted in our sustained bearish stance on the U.S. economy and the state of U.S. financials at large. Specifically, we expect a tsunami of debt issuance from federal/sovereign, state and local governments to fund woefully underfunded budget gaps. In addition, we expect corporate debt issuance to be at least 60% as strong as peak cycle levels, reflecting sizable debt maturity rolls. What’s more, given fewer players in the market, not only is GS benefiting from market share gains on these products, but more widely in the derivatives products.”

The Daily Reckoning